Expect three more rate cuts, NAB says

Australian homeowners can look forward to three more interest rate cuts in 2013, one of the country’s biggest banks says.

National Bank of Australia predicts the Reserve Bank of Australia will cut the cash rate to an all-time low of 2.25 per cent by September this year. NAB had previously expected the RBA to deliver just one more 0.25 per cent cut in the current easing cycle.

It now expects the RBA to cut by a quarter per cent in March, May and August. NAB group chief economist Alan Oster said that would bring standard variable mortgage rates to levels achieved following the global financial crisis, which saw them fall as low as 5.75 per cent.

Mr Oster said the new forecast was due to a weaker outlook for the Australian economy, which would also push up the unemployment rate.

‘‘With the economy set to weaken and unemployment set to rise noticeably through 2013 the RBA will have to cut more than previously expected,’’ he said in a report put together by NAB’s economics team.

Mr Oster now expects the Australian economy to grow by 2 per cent in the 2013 calendar year, down from the bank’s previous forecast of 2.5 per cent growth.

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NAB also expects the unemployment rate to rise to around 5.7 or 5.8 per cent during the year.

By contrast, the more recent figures from the Australian Bureau of Statistics show the economy grew 3.1 per cent in the year to September 2012, while the unemployment rate was at 5.2 per cent in December.

Mr Oster also expects consumer price index (CPI) inflation to stall below three per cent, within the RBA’s target range of 2 to 3 per cent.

‘‘That in turn eases the pressure on the RBA and allows it to concentrate on using rate cuts to help stimulate the economy,’’ he said.

The central bank has reduced the cash rate by 1.75 percentage points between November 2011 and December 2012 to its current level of three per cent.

NAB’s new forecast comes after another of the big four banks, ANZ, announced in December it expected the RBA to cut the cash rate to 2 per cent in 2013.

Meanwhile, financial markets have been trimming their bets on a rate cut at the RBA's next meeting in February. After strong rises in the iron ore price to around $US160 a tonne and more signs of a revival in the Chinese economy, interest rate swaps indicate a just 30 per cent chance of a rate cut in February.

For 2013 the markets are betting the RBA will shave around 40 basis points off the cash rate - meaning one rate cut is seen as a certainty and there's a 60 per cent chance of two cuts.